E&O Claim Scenario: Umbrella Claim

Facts

An agent had been servicing a client’s personal insurance account for many years, which included an auto, a homeowner’s and an umbrella policy. The client terminated the auto policy as he was able to procure auto insurance from another carrier for less premium. The umbrella and homeowner’s insurance policies remained in force. As a result of the termination of the auto policy, the umbrella policy only applied in the event of a claim under the homeowner’s policy.

Umbrella Policy Coverage Denied

Several years after terminating the auto policy, the client was involved in an auto/motorcycle accident in which the motorcycle driver was killed. The client’s auto policy had a $300,000 limit and he placed the umbrella carrier on notice that if the matter could not be resolved for $300,000 or less, the client would look to the umbrella carrier to provide excess coverage. The carrier for the umbrella policy denied coverage based upon the exclusion for any auto claims.

According to the client, he had a conversation with the agent after the accident and he recalls the agent assuring him that there would be coverage under the umbrella policy for the auto accident. The agent denies ever having made such a statement.

The agent stated that when his client changed auto carriers, he verbally advised his client to pick the “highest limit possible” on the new auto policy, given the lack of continued umbrella coverage.

The carrier sent the client a copy of the umbrella auto exclusion and it was endorsed onto the umbrella policy.

The controlling law in the State in which this matter is pending is in the agent’s favor for the following reasons:

1. The agent has no duty to advise the insured/client that the umbrella policy would no longer cover auto related claims, unless the client specifically inquired about it;
2. The client received a letter from the insurance carrier about the new exclusion to the umbrella policy;
3. Coverage cannot be verbally bound by an agent and the client’s claim that the agent told him that there would be coverage is not sufficient to create coverage where none existed.

What Do Insurance Agents Need To Do?

Although, as indicated above, the State law in which this matter is pending is in favor of the agent, the matter still needs to work through the legal process to be dismissed and the agent will need to take time from his business to engage in the legal process, which could involve giving testimony at depositions and possibly trial. The process is not only expensive, but time consuming and will take the agent away from his own business.

At the time the client advised the agent of his intention to change auto carriers, the agent should have documented the conversation clearly (preferably by sending a confirming writing to the client) and should have advised the client how the umbrella coverage would be impacted. Not only would this have created an easily defensible matter, the agent may have also persuaded the client not to change auto carriers.

DISCLAIMER:

This article/blogpost is provided for informational purposes only, does not necessarily represent Aspen’s views, and reflects the opinion of the authors in light of market, regulatory and other conditions which may change over time. Aspen does not undertake a duty to update the article/blogpost.